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Overview
Net sales for the second quarter of fiscal 2010 totaled $74.8 million compared with $110.7 million in the year-earlier period. Palm Harbor reported an operating loss of $6.6 million for the second quarter of fiscal 2010 compared with an operating loss of $4.4 million for the second quarter of fiscal 2009. Net loss for the second quarter of fiscal 2010 totaled $10.4 million, or ($0.45) per share, compared with a net loss of $7.8 million, or ($0.34) per share, a year ago. For the second quarter of fiscal 2009, losses associated with Hurricane Ike incurred by the Company's insurance company, Standard Casualty, and from weather-related transportation and delivery delays in Texas and the east coast, reduced profitability by approximately $0.10 per share. Excluding these non-recurring items, net loss for the second quarter of fiscal 2009 was ($0.24) per share.
Net sales for the first six months of fiscal 2010 were $157.2 million compared with $240.7 million in the year-earlier period. Net loss for the first half of fiscal 2010 totaled $20.4 million, or ($0.89) per share, compared with a net loss of $8.3 million, or ($0.37) per share, in the first half of fiscal 2009. The results for the first half of fiscal 2009 included a pre-tax gain of $3.8 million, or $0.17 per share, on the repurchase of convertible senior notes. Excluding this gain and the non-recurring items noted above, net loss for the first half of fiscal 2009 was ($0.44) per share.
Improved Operating Efficiencies
Commenting on the results, Larry Keener, chairman and chief executive officer of Palm Harbor Homes, Inc., said, "Our results for the second quarter reflect the ongoing challenges facing the overall housing industry. Revenues have clearly been affected by constrained demand for factory-built housing products resulting from more restrictive financing environment and an over-supply of discounted site-built homes. While our year-over-year revenues declined 32 percent, this trend still compares favorably with the year-to-date overall industry decline of 43.2 percent for HUD-code manufactured housing and a 50.4 percent decline in modular sales.
"With the expected reduction in revenues, we have continued to streamline our operating costs. As a result of our improved manufacturing efficiencies, gross margin for the second fiscal quarter was a solid 24.1 percent, unchanged from the prior year. We have effectively lowered our quarterly selling, general and administrative costs by 21 percent, or an annualized reduction of $26 million, from the same period a year ago. We are now better positioned to sustain a continued downturn and, at the same time, benefit from any market improvement when it occurs. We are encouraged by some modest improvement in store traffic and sales as we begin our third fiscal quarter. However, we believe the primary catalyst for a meaningful improvement in demand for factory-built housing products will depend on a significant change in credit availability. We remain hopeful that congressional mandated expansion of government sponsored lending for factory-built housing will have a further positive impact on business in 2010.
"In light of the current sales environment, we are carefully managing our costs and are pleased, but not satisfied, with the progress we have made in improving our operating efficiencies," added Keener. "At the same time, we are pursuing innovative ways to both expand our product offering and reach new distribution channels to further drive revenues. We believe the commercial and military markets for modular products represent a new growth opportunity at higher price points than the residential market. We will start production on a $13.5 million military project that will be completed in calendar year 2010 and we will continue to aggressively bid on additional future projects.
Profitable Insurance and Finance Businesses
"Our financial services operations have continued to support our business through this challenging environment. Standard Casualty, our insurance subsidiary, has remained a very consistent performer for the Company with steady growth in policies written and a profitable second quarter. Country Place Mortgage, Palm Harbor's mortgage lending subsidiary, also remains profitable and its loan portfolio continues to perform significantly better than the national residential delinquency rates reported in the most recent Mortgage Bankers Association National Delinquency Survey. Country Place is focused on building its conforming mortgage business and is well positioned to meet current specialized loan demand as an approved Fannie Mae seller servicer and FHA lender," added Keener.
Cash Flow Improvement
Kelly Tacke, executive vice president and chief financial officer of Palm Harbor Homes, Inc., commented, "Our top priority for fiscal 2010 is to manage our liquidity with a tight focus on cash generation and cash preservation in every area of our operations. For the first six months of fiscal 2010, we had positive cash flows from operating activities of approximately $13 million. Our balance sheet reflected $17.3 million in cash and cash equivalents at the end of the second fiscal quarter, compared with $12.4 million at the end of fiscal 2009. We remain committed to maintaining a strong balance sheet in light of today's challenging economic conditions."
A conference call regarding this release is scheduled for Wednesday, October 28, 2009, at 10:00 a.m. (Eastern Time). Interested parties can access a live simulcast on the Internet at www.PalmHarbor.com or www.earnings.com. A 30-day replay will be available on both websites.
Palm Harbor Homes is one of the nation's leading manufacturers and marketers of multi-section manufactured homes. The Company markets nationwide through vertically integrated operations, encompassing manufacturing, marketing, financing and insurance. For more information on the Company, please visit www.palmharbor.com.
This press release contains projections and other forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. These projections and statements reflect the Company's current views with respect to future events and financial performance. No assurance can be given, however, that these events will occur or that these projections will be achieved and actual results could differ materially from those projected as a result of certain factors. A discussion of these factors is included in the Company's periodic reports filed with the Securities and Exchange Commission.
PALM HARBOR HOMES, INC.
Statements of Operation
(Dollars in thousands, except per share data)
For the second quarter and six months ended September 25, 2009 and
September 26, 2008
Second Quarter Ended Six Months Ended
Sept. 25, Sept. 26, Sept. 25, Sept. 26,
2009 2008(1) 2009 2008(1)
(Unaudited) (Unaudited)
Net sales $ 74,797 $ 110,716 $ 157,218 $ 240,737
Cost of sales 56,784 84,081 119,881 182,145
Gross profit 18,013 26,635 37,337 58,592
Selling, general and administrative expenses 24,657 31,084 49,035 62,263
Loss from operations (6,644 ) (4,449 ) (11,698 ) (3,671 )
Interest expense (4,054 ) (4,493 ) (9,018 ) (9,372 )
Gain on repurchase of convertible senior notes - 738 - 3,775
Other income 211 583 439 1,164
Loss before income taxes (10,487 ) (7,621 ) (20,277 ) (8,104 )
Income tax benefit (expense) 91 (184 ) (97 ) (242 )
Net loss $ (10,396 ) $ (7,805 ) $ (20,374 ) $ (8,346 )
Loss per common share:
Basic and diluted $ (0.45 ) $ (0.34 ) $ (0.89 ) $ (0.37 )
Weighted average common shares outstanding:
Basic and diluted 22,875 22,869 22,875 22,860
Condensed Balance Sheets
(Dollars in thousands)
September 25, 2009 and March 27, 2009
September 25, March 27,
2009 2009 (1)
Assets (Unaudited)
Cash and cash equivalents $ 17,324 $ 12,374
Trade accounts receivables 20,543 23,458
Consumer loans receivable, net 184,227 191,597
Inventories 85,948 97,144
Property, plant and equipment, net 33,088 35,937
Other assets 44,403 51,172
Total Assets $ 385,533 $ 411,682
Liabilities and Shareholders' Equity
Accounts payable and accrued liabilities $ 69,116 $ 64,836
Floor plan payable 44,550 49,401
Convertible debt 49,117 47,939
Warehouse revolving debt 4,471 3,589
Securitized financings 130,969 140,283
Shareholders' equity 87,310 105,634
Total Liabilities and Shareholders' Equity $ 385,533 $ 411,682
(1) Included in the Company's second quarter results for fiscal
2010 and 2009 is the impact of approximately $589,000 and
$676,000, respectively, of non-cash interest expense related to
the retrospective adoption of the new accounting rules related to
convertible debt instruments that may be settled in cash upon
conversion. For the year-to-date period for fiscal 2010 and 2009,
the impact is approximately $1,178,000 and $1,476,000,
respectively. This additional non-cash interest expense represents
the amortization of a debt discount recorded against the Company's
convertible debt as required under the new accounting rules,
applied retrospectively.
PALM HARBOR HOMES, INC.
Quick Facts
Second Quarter Ended Six Months Ended
Sept. 25, Sept. 26, Sept. 25, Sept. 26,
2009 2008 2009 2008
FACTORY-BUILT HOUSING:
Company-owned superstores and builder locations:
Beginning 81 87 86 87
Added - - - -
Closed (3 ) - (8 ) -
Ending 78 87 78 87
Factory-built homes sold through:
Company-owned superstores and builder locations 596 828 1,176 1,737
Independent dealers, builders and developers 170 312 319 596
Total factory-built homes sold 766 1,140 1,495 2,333
Factory-built homes sold as:
Single-section 171 189 305 386
Multi-section 431 673 853 1,388
Modular 164 278 337 559
Total factory-built homes sold 766 1,140 1,495 2,333
Commercial buildings sold:
Number of commercial buildings sold 11 5 40 31
Net sales from commercial buildings sold (in 000's) $ 1,735 $ 592 $ 9,644 $ 9,807
Average sales prices:
Manufactured housing - retail $ 67,000 $ 74,000 $ 68,000 $ 75,000
Manufactured housing - wholesale $ 51,000 $ 53,000 $ 53,000 $ 52,000
Modular housing - consumer $ 168,000 $ 171,000 $ 168,000 $ 172,000
Modular housing - builder and developer $ 73,000 $ 67,000 $ 74,000 $ 73,000
Homes produced 716 1,052 1,372 2,072
Internalization rate (residential manufactured and modular) 75 % 67 % 74 % 68 %
FINANCIAL SERVICES
Loan originations
CPM 81 54 143 171
Insurance penetration:
Warranty 85 % 93 % 88 % 93 %
Physical damage 68 % 69 % 68 % 69 %
SOURCE: Palm Harbor Homes, Inc.
Palm Harbor Homes, Inc. Kelly Tacke, 972-991-2422 Executive Vice President and Chief Financial Officer
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